Senate takes up bill allowing states to collect sales taxes for online purchases

WASHINGTON - The Senate is debating a bill that would allow states to collect sales taxes from Internet purchases.

Under current law, states can only require stores to collect sales taxes if the store has a physical presence in the state. As a result, many online sales are essentially tax-free, giving Internet retailers a big advantage over brick-and-mortar stores.

The bill would allow states to require online retailers to collect state and local sales taxes for purchases made over the Internet. The sales taxes would be sent to the states where shopper lives.

The Senate has scheduled a procedural vote Monday on the bill. It is expected to pass, setting up a vote on the floor as early as this week.

Supporters say the bill is about fairness for businesses and lost revenue for states. Opponents say it would impose complicated regulations on retailers and doesn't have enough protections for small businesses. Businesses with less than $1 million a year in online sales would be exempt.

"I believe it is important to level the playing field for all retailers," said Sen. Mike Enzi, R-Wyo., the bill's main sponsor. "We should not be subsidizing some taxpayers at the expense of others."

In many states, shoppers are required to pay unpaid sales tax when they file their state income tax returns. However, states complain that few people comply.

"I do know about three people that comply with that," Enzi said.

President Barack Obama supports the bill, but its fate is uncertain in the House, where some Republicans regard it as a tax increase.

The bill pits brick-and-mortar stores like Wal-Mart against online services such as Ebay. The National Governors Association and the National Retail federation support it.

Amazon.com, which initially fought efforts in some states to make it collect sales taxes, supports the bill.

"Amazon.com has long supported a simplified nationwide approach that is evenhandedly applied and applicable to all but the smallest volume sellers," Paul Misener, Amazon's vice-president of global public policy said in a recent letter to senators.

Ebay has been rallying customers to oppose the bill.

"I hope you agree that imposing unnecessary tax burdens on small online businesses is a bad idea," eBay president and CEO John Donahoe said in a letter to customers. "Join us in letting your Members of Congress know they should protect small online businesses, not potentially put them out of business."

The bill is also opposed by senators from states that have no sales tax, including Sen. Max Baucus, D-Mont., and Sen. Kelly Ayotte, R-N.H.

"Supporters of this online sales tax bill are trying to muscle it through before senators find out how disastrous it would be for businesses in their states," Ayotte said. "I will fight this power grab every step of the way to protect small online businesses in New Hampshire and across the nation."

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